San Diego Must End Delays and Implement Managed Competition Now

The following are remarks delivered on June 14, 2010, at a press conference organized by San Diego Councilmember Carl DeMaio to promote a ballot initiative, The Competition and Transparency in City Contracting Initiative, that would force the City of San Diego to implement managed competition reforms to encourage the city to allow private-sector companies to compete for contracts to provide various city services more cheaply and efficiently. Voters overwhelmingly approved a managed competition measure in November 2006 but the city employees’ labor unions, fearful of competition and losing contracts to more efficient service providers in the private sector, have effectively stonewalled the implementation of the program for over three and a half years. The press conference took place at the Rancho Bernardo Library, which has seen its hours slashed as the city has been unable to implement the managed competition program, and has resorted to service cuts to balance the budget.

I’m glad to have the opportunity to talk about a common-sense reform that can help get San Diego back on the path to fiscal responsibility. As San Diego struggles with a significant budget deficit—and likely will be forced to do so for years to come—the only so-called “solutions” we seem to hear from political leaders (other than [Councilmember Carl DeMaio], here) are tax increases or service cuts. There is never any talk of rooting out waste and doing more with what we’ve already got.

It is far past time for San Diego to get serious about a budget reform that has proven to be a successful strategy at all levels of government: introducing competition to provide government services. Federal, state, and local governments across the country, led by administrations on both sides of the political aisle, have recognized that outsourcing and managed competition are effective ways of introducing greater incentives to minimize costs and maximize service quality.

In September of 2007, Reason Foundation did a study of managed competition opportunities for San Diego. We looked at a wide variety of city services including:

  • Building maintenance
  • Information technology
  • Trash collection
  • Library operations
  • Parks and recreation (including city-owned golf courses)
  • Printing and copying services
  • Street maintenance
  • Permitting services
  • Vehicle fleet maintenance, and
  • Water and wastewater operations

We conservatively estimated, based on case studies from numerous state and local competitive sourcing efforts, that if San Diego put all of these services up for competitive bid, it could save between $80 million and $200 million a year.

Last year, Reason took a closer look at a couple of these services. Using a very conservative estimated cost savings range of 10% to 25%, we estimate that the City could save between $6.5 million and $16.5 million per year just by outsourcing its building maintenance services and vehicle fleet maintenance services.

Managed competition and outsourcing are hardly new or unusual ideas.

The City of Indianapolis has won praise for its successful managed competition programs going back to the early 1990s. For example, in the mid-1990s, the City competed its vehicle fleet services. The introduction of competition prompted the City’s Indianapolis Fleet Services agency to streamline and make other operational changes. The City’s fleet agency ended up winning the bid and began providing much improved services at less cost than it had without competition just a year prior. As a result of the competition, the City saved $4.2 million over a three-year period, an estimated cost savings of 21%, and the number of labor grievances and workers’ compensation claims saw significant drops as well.

The City of Phoenix implemented a managed competition program in the late 1970s to address a looming fiscal crisis. One of its successful competitions was for trash and recycling collection. The city was divided into six geographic regions and collection services in each sector were put up for bid on a rotating basis. Some bids were won by the city, and others were won by private providers. As a result of the competition, the city has saved about $25 million over the past 30 years. Add in savings for competitions for solid waste transfer hauling and landfill operations and the city has saved a total of almost $40 million.

Speaking of landfills, San Diego County benefited from selling the struggling North County Resource Recovery Facility in San Marcos. The recycling facility was $100 million in debt, the County was in deep financial trouble, and debt obligations began to affect other essential County services. In 1997, the County sold the facility to Allied Waste Industries, netting $184 million after paying off the $100 million in debt from the construction of the facility. The sale also increased the County’s bond rating, allowing it to refinance other projects and save several hundred thousand dollars a year more. The County used the funds from the sale to create an environmental trust fund to finance the long-term maintenance of closed county-owned landfills, to fill up a number of reserve funds, and to enhance other County services.

At the time, County Supervisor Dianne Jacob said, “Our responsibility was to find a long-term solution that would achieve all our objectives—and divestiture was the solution. The fact is that the [private] sector can function far more cost-effectively in this industry—resulting in better services and lower trash collection rates for consumers.”

More recently, last October the County voted to outsource 160 health services caseworkers and other employees, at a savings of nearly $7 million a year.

Some have argued that the City might get taken advantage of by unscrupulous contractors, or that a contractor might provide shoddy services. The experience of other state and local governments shows that this is extremely rare, but the beauty of competitive sourcing is that if the City ever does get a contractor that isn’t living up to its contract, it can simply fire them and get a new one. That’s an option taxpayers don’t have now. And it’s that lack of the ability to replace city agencies with better service providers from the private sector that leads to complacency, waste, and inefficiency under the current system.

Given the cost savings and other benefits of outsourcing and managed competition, the question shouldn’t be “What services can we competitively bid?” but rather, “What services can’t we put up for bid?”

If Indianapolis, Phoenix, San Diego County, and numerous other governments across the nation can successfully implement competitive sourcing reforms, why can’t the City of San Diego?

The sooner San Diego implements outsourcing or managed competition reforms, the sooner it will be able to realize the benefits of competition and use them to balance the budget and prevent program cuts in other areas.